Eye on the News

Nicole Gelinas

De Blasios French Lessons

Gothams new mayor sounds like François Hollande, and he risks similar results.

January 7, 2014

In his inaugural address last Wednesday, New Yorks new mayor, Bill de Blasio, promised to commit the city he now leads to a new progressive direction. As Gotham embarks on a dramatic new approach, he promised, the world will watch as we succeed. De Blasio should be watching the world instead—particularly France. The policy prescription that brought de Blasio to office—higher income taxes on New Yorks wealthy—is exactly what French president François Hollande proposed to win his own post nearly two years ago. Since then, Hollandes approval rating has plummeted to record lows for a French leader. French citizens have grown tired of symbolic anti-rich gestures; they want real solutions to real problems.

Hollande, who won office in May 2012, was one of the first leftist Western politicians to benefit from two global trends after 2008: disillusionment with incumbent politicians and dismay at income inequality. Hollandes opponent and predecessor, Nicolas Sarkozy, was well settled in office during the economic collapse of 2008—a toxic place to be for any Western leader. But Sarkozy, like former New York mayor Michael Bloomberg, was also practically a cartoon embodiment of the second target of anger. Sarkozy was the bling-bling president who outfitted the presidential jet with a top-of-the-line oven so that he could eat gourmet food in the air, the president who traded in his (second) wife for a model-turned-singer-turned-movie-star, the president who loved hanging out with the worlds 1 percent on yachts and private beaches. In expelling a sitting head of state for the first time in three decades, the French made it clear that they wanted change.

But victory came almost too easily. Hollande didnt have to put forward any serious policy proposals to win. Frances problems were straightforward and remain so: persistent deficits, caused not by the economic crisis but by ever-growing retirement costs; plus high unemployment, caused by high taxes and heavy social mandates on employers—including the near-impossibility of firing a permanent worker. Hollande had little to say about these issues. Instead, his plan was simple: tax the rich. He increased top-bracket income taxes from 41 percent to 45 percent and imposed a temporary two-year levy of 75 percent on income above 1 million euros. In his inauguration speech, he said that to put France back on her feet, in a fair way, he would discourage exorbitant income and remuneration. Though he acknowledged Frances intractable problems, the closest he got to a solution was to say that Europe needs projects.

In the nearly two years that followed, Hollande clung to this platform even as Frances fiscal and economic situation worsened. Unemployment has risen from 10.2 to 10.9 percent, even as it has fallen slightly across the West (and fallen more in the United States and Britain). In November, Standard & Poors downgraded Frances credit from AA+ to AA. The cut was an explicit no-confidence vote in Hollande, with analysts saying that we believe the French governments reforms to taxation, as well as to product, services and labor markets, will not substantially raise Frances medium-term growth prospects and that ongoing high unemployment is weakening support for further significant fiscal and structural policy measures. (France had lost its top AAA rating in Sarkozys waning days.) Meanwhile, toward the end of last year, Hollandes approval rating fell to 25 percent as Sarkozy watched, possibly plotting a comeback.

Hollandes disastrous performance in office stems from two factors. First, Hollande couldnt levy a punitive tax on the rich without sending them or their money fleeing for at least two years. The new presidents tax hike, then, was always going to be largely symbolic. It likely wont raise even 1 billion euros in the context of a nearly 400-billion-euro budget. Ineffectual though it may be as a revenue raiser, the new tax threatens to do huge damage to the French economy. Newspapers have run complaints from soccer teams worried that theyll lose their best players and from tech entrepreneurs concerned that they wont be able to raise start-up capital.

Imposing the tax has been an administrative headache as well. A year ago, Frances top court declared the tax unconstitutional. It took another year for Hollande to restructure the tax to pass constitutional muster. In the meantime, French citizens have watched their already precarious economic fortunes deteriorate while other taxes, including the broad-based value-added tax on goods and services, have risen to fund ever-higher spending. Now, in the face of public anger and frustration, Hollande is promising to cut taxes on the middle class and on businesses. To do that, hes finally getting somewhat serious about spending cuts.

De Blasio can take a lesson here. Yes, there are differences between France and New York. New Yorks economy, having recovered all the jobs lost since 2008 and added 145,000 new ones, is in better shape than Frances (and most of Americas). The barriers to hiring workers in New York are not nearly as great as in France (though national mandates, such as Obamacare, have made them worse).

Still, the parallels are striking. Voters propelled de Blasio into office on little more than a vague notion of fixing inequality. Like Hollande, de Blasios fix is a tax increase, albeit a less extreme one. He would hike taxes by 14 percent on those making more than half a million dollars annually for five years. Like Hollande, de Blasio will have difficulty pushing the tax through: he needs Albanys approval first. And even if he succeeds, de Blasios tax hike, like Hollandes, will be little more than symbolic. The rich already pay more than their fair share; they earn about a third of the citys income and pay more than 40 percent of income taxes. And education spending, which de Blasio wants to expand with the new revenues, has already nearly doubled over the past decade, reaching $24.6 billion during Bloombergs final year in office. This Monday, de Blasio made it clear that the tax hike is necessary politically, rather than economically or fiscally. When reporters asked him whether hed drop the idea if New York governor Andrew Cuomo gives him another source of state money instead, the new mayor answered: I want to go over this again: We have a goal. We believe in this goal. We believe its the right thing to do. We are sticking to this goal. In other words, the means—a new levy on the rich—matter more than the supposed end.

New York has serious problems that the new mayor must address. Pension and health costs for city workers and retirees now consume one-third of the city-funded budget, double their share when Bloomberg took office. (Bloomberg himself recently called this growth one of urban Americas biggest challenges.) The citys labor contracts all expired years ago. But New York cannot afford retroactive raises or future-year raises unless union members agree to big retirement-benefit and productivity concessions. These rising costs threaten New Yorks ability to expand and modernize infrastructure and to maintain quality of life, as the city cuts its current workforce to take care of its retirees.

De Blasio ignored these issues in his inaugural address. His speech—though innocuous compared with what other speakers said that day—was notable mostly for its lack of content. As Hollande said of France, de Blasio said hed make New York a fairer, more just, more progressive place, through a tax on the wealthiest among us. Lets hope that it doesnt take him as long to learn the lesson that Hollande has finally absorbed: soaking the rich may win elections, at least in todays political environment, but its of little use once youre in office.

Nicole Gelinas is a City Journal contributing editor and the Searle Freedom Trust Fellow at the Manhattan Institute.

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